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Spread

• The difference between the price paid for a security by the investment banker and the sale price.

• (1) Difference between bid and asked prices on a security. (2) Difference between yields on or prices of two securities of differing sorts or differing maturities. (3) In underwriting, difference between price realized by the issuer and price paid by the investor. (4) Difference between two prices or two rates. What a commodities trader would refer to as the basis.

• In a quote, the difference between the Bid and the Ask prices of a security. The spread for a company's stock is influenced by a number of factors, including supply or float (the total number of shares outstanding available to trade); demand or interest in a stock; or total trading activity in the stock. (2) An options position established by purchasing one option and selling another option of the same class, but of a different series.

• Is the simultaneous purchase and sale of two related instruments. This strategy tries to transform outright price risk into a basis or relationship risk position. It is also viewed as the difference between the bid and the offer or the profit margin.

• (1) The gap between bid and ask prices of a stock or other security. (2) The simultaneous purchase and sale of separate futures or options contracts for the same commodity for delivery in different months. Also known as a straddle. (3) Difference between the price at which an underwriter buys an issue from a firm and the price at which the underwriter sells it to the public. (4) The price an issuer pays above a benchmark fixed-income yield to borrow money.

 
 

Follow this link for all the terms related to spread.

 
 Embedded terms in definition
 Ask price
Asked
Basis
Benchmark
Borrow
Class
Commodity
Delivery
Demand
Firm
Float
Futures
Instruments
Interest
Investment banker
Investment bank
Investor
Issuer
Issue
Margin
Offer
Options contract
Options
Option
Position
Price risk
Prices
Profit margin
Profit
Purchase and sale
Purchase
Quote
Risk
Sale
Securities
Security
Series
Shares
Stock
Straddle
Trading
Underwriter
Underwriting
Yield
 
 Referenced Terms
 Arbitrage: The simultaneous buying and selling of a security at two different prices in two different markets, resulting in profits without risk. Perfectly efficient markets present no arbitrage opportunities. Perfectly efficient markets seldom exist.Strictly defined, buying something where it is cheap and selling it where it is dear; for example, a bank buys 3-month CD money in the U.S. market and sells 3-month money at a higher rate in the Eurodollar market. In the money market, often refers: (1) to a situation in which a trader buys one security and sells a similar security in the expectation that the Spread in yields between the two instruments will narrow or widen to his profit, (2) to a swap between two similar issues based on an anticipated change in yield spreads, and (3) to situations where a higher return (or lower cost) can be achieved in the money market for one currency by utilizing another currency and swapping it on a fully hedged basis through the foreign-exchange market.Is a form of trading which attempts to profit by discrepancies in price due to location, funding, volatility, communications, response to information, or other differences. Typically, the price differences are small and only the quickest, most cost efficient or funding efficient parties participate. Compare with Risk Arbitrage.

 Arms: See Adjustable Rate Mortgages.Adjustable rate mortgage. A mortgage that features predetermined adjustments of the loan interest rate at regular intervals based on an established index. The interest rate is adjusted at each interval to a rate equivalent to the index value plus a predetermined Spread, or margin, over the index, usually subject to per-interval and to life-of-loan interest rate and/or payment rate caps.

 Ask price: A dealer's price to sell a security; also called the offer price.This is the price dealers are willing to sell securities at. This is typically higher than the price dealers are willing to buy securities (called bid price). The difference between the ask and bid prices is called the bid-ask Spread and represents the profit to the dealer for supplying immediate execution services.See Ask.

 Back spread or backspread: Is a position where you buy more options relative to the number of sold options. This strategy typically is placed in the expectation of a dramatic move. Compare to Ratio Spread.

 Basis: Is the relationship between an actual or cash market with a futures instrument. The relationship is typically the simple difference between the cash market and the futures.Also known as Cost Basis or Tax Basis. A security's basis is the purchase price after commissions or other expenses, and is used to calculate capital gains or losses when the security is eventually sold.(1) Number of days in the coupon period. (2) In commodities jargon, basis is the Spread between a futures price and some other price. A money market participant would talk about spread rather than basis.Regarding a futures contract, the difference between the cash price and the futures price observed in the market. Also, it is the price an investor pays for a security plus any out-of-pocket expenses. It is used to determine capital gains or losses for tax purposes when the stock is sold.

 
 Related Terms
 

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